What is an FHA Insured Loan?
Federal Housing Administration (FHA) insured loans are made by private lending institutions such as banks, savings and loans, or mortgage companies to eligible borrowers for the purchase of a home. To secure an FHA loan, a borrower must apply and qualify with a certified FHA Lender. Additionally, eligible borrowers must be able to pay a minimum of 3.5% of a home's purchase price. If the loan is approved, FHA will insure a portion of the loan's value to the lender.
This insurance protects the lender and allows them to offer favorable financial terms to the borrower including:
After finding your desired home and negotiating a purchasing price with the seller, or selling agent, you will sign a purchase contract conditioned on approval of an FHA insured loan.
LOAN APPLICATION
Select a lender and complete their loan application. The lender will obtain all your relevant credit information and request FHA to assign a licensed appraiser to determine the reasonable value for the property. You will be responsible for paying for the credit report and appraisal unless the seller agrees to pay instead. Either FHA or the lender will issue a value for property for loan purposes based on the appraisal.
LOAN DECISION
If the established value is acceptable to all parties and the lender determines that you are credit and income qualified, the loan may be approved. Most lenders are authorized to make this decision.
LOAN CLOSING
You (and any co-borrowers) attend the loan closing and sign the note, deed of trust and other related papers. The lender or closing agent will explain the loan terms and requirements as well as where an how to make the monthly payments. (The loan closing procedure may vary in some states.)
In addition to the favorable financial terms, FHA insured loans offer the following benefits:
This insurance protects the lender and allows them to offer favorable financial terms to the borrower including:
- Low required down payment
- Competitive interest rates
- Lower closing costs
- Easy credit qualifying
What is the Process of Obtaining FHA Insured Loans?
CONTRACT TO PURCHASEAfter finding your desired home and negotiating a purchasing price with the seller, or selling agent, you will sign a purchase contract conditioned on approval of an FHA insured loan.
LOAN APPLICATION
Select a lender and complete their loan application. The lender will obtain all your relevant credit information and request FHA to assign a licensed appraiser to determine the reasonable value for the property. You will be responsible for paying for the credit report and appraisal unless the seller agrees to pay instead. Either FHA or the lender will issue a value for property for loan purposes based on the appraisal.
LOAN DECISION
If the established value is acceptable to all parties and the lender determines that you are credit and income qualified, the loan may be approved. Most lenders are authorized to make this decision.
LOAN CLOSING
You (and any co-borrowers) attend the loan closing and sign the note, deed of trust and other related papers. The lender or closing agent will explain the loan terms and requirements as well as where an how to make the monthly payments. (The loan closing procedure may vary in some states.)
FHA Loan Benefits
FHA insured loans offer a number of benefits for both lender and borrowers. Since 1934, the program has insured over 35 million home mortgages.In addition to the favorable financial terms, FHA insured loans offer the following benefits:
- Equal opportunity for all qualified borrowers
- Required down payments as low as 3.5% of the purchase price
- Ability to finance up front Mortgage Insurance Premium
- Ability to finance the cost of repairing and/or improving a property in need of rehabilitation
- Right to prepay without penalty
- Credit Improvement in the qualifying process for some borrowers
- Availability in all areas of the country
- Default assistance and foreclosure prevention
Copyright 2012 Keller Williams® Realty, Inc. If you have a brokerage relationship with another agency, this is not intended as a solicitation. All information deemed reliable but not guaranteed. Equal Opportunity Housing Provider. Each office is independently owned and operated.
Labels: advantages, benefits, down payment, FHA loan
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